SIPP Explained: Self-Invested Personal Pension

Last reviewed: July 2026

What a SIPP is

A Self-Invested Personal Pension is a type of defined contribution pension registered with HM Revenue and Customs. It is called self-invested because the holder chooses and manages the underlying investments directly, from a wide range that typically includes individual shares, ETFs, index funds, investment trusts, and other qualifying assets, rather than being limited to a small selection of funds chosen by an employer's pension provider.

A SIPP works within the same broad tax framework as other UK registered pensions. Money paid in attracts tax relief, growth within the pension is free of Capital Gains Tax and Income Tax, and withdrawals in retirement are taxed as income, except for the tax-free lump sum.

How tax relief works

When a personal contribution is made to a SIPP, the provider claims basic rate tax relief from HM Revenue and Customs and adds it to the pension automatically, meaning a net contribution is grossed up. Higher and additional rate taxpayers can claim the further relief they are entitled to through Self Assessment, since the automatic relief added by the provider only covers the basic rate.

There is an annual allowance limiting how much can be paid into pensions each tax year while still attracting tax relief, and a separate limit tied to relevant UK earnings for money purchase pensions. These limits and thresholds are reviewed and can change at each Budget, so the current figures should be checked against HM Revenue and Customs guidance directly rather than assumed to be fixed.

Self-invested versus a standard personal pension

A standard personal pension or workplace pension typically offers a limited range of funds selected by the provider, often a handful of default options suited to broad risk profiles. A SIPP widens this considerably, giving the holder direct control over which shares, funds, and other qualifying assets sit inside the wrapper. This flexibility suits investors who want to manage their own portfolio construction, but it also places the responsibility for investment decisions, and their outcomes, more directly on the individual than a default workplace pension fund would.

Accessing the money

Money in a SIPP cannot generally be withdrawn before the normal minimum pension age, which is set by HM Revenue and Customs and is separate from the State Pension age. This minimum pension age is scheduled to rise from 55 to 57 from April 2028, with limited protections for some savers who already had a right to access their pension at an earlier age under older scheme rules.

Once the minimum pension age is reached, a SIPP holder typically has several ways to draw money: taking a tax-free lump sum, moving the remainder into drawdown to take a flexible income while the rest stays invested, purchasing an annuity for a guaranteed income, or a combination of these. The tax-free lump sum is usually up to 25 percent of the pension value, subject to a monetary cap set by HM Revenue and Customs. Everything drawn beyond the tax-free lump sum is taxed as income in the tax year it is taken.

Costs to check

SIPP providers typically charge a platform fee, either as a percentage of assets held or a flat fee, and this is separate from the ongoing charges of any underlying funds held within the SIPP. Some providers also charge for specific actions such as drawdown administration or transfers out. Because a SIPP is typically held for decades, small percentage differences in annual platform charges compound significantly over a working lifetime, making the fee structure worth comparing carefully against the investment range on offer.

Transferring an existing pension into a SIPP

Many savers build a SIPP by consolidating older workplace or personal pensions from previous employers into a single account. This can simplify management and potentially reduce overall charges, but certain older pensions carry valuable guarantees, such as guaranteed annuity rates or defined benefit entitlements, that would be permanently lost on transfer. Any pension with such guarantees, particularly defined benefit pensions, generally requires regulated financial advice before a transfer can proceed, and for larger defined benefit transfers this advice is a legal requirement, not an option.

SIPPs and inheritance

Pensions, including SIPPs, have historically sat outside the estate for Inheritance Tax purposes in most circumstances, differing from ISAs and other savings. Announced changes mean pensions are being brought within the scope of Inheritance Tax from April 2027, a significant shift from previous treatment. Anyone doing inheritance planning around a SIPP should check the current rules directly against HM Revenue and Customs guidance, since this area has changed and may continue to change.

SIPP versus ISA for long-term saving

A SIPP and a Stocks and Shares ISA are both tax-advantaged wrappers, but they serve different purposes. A SIPP offers tax relief on the way in but restricts access until minimum pension age and taxes withdrawals as income. An ISA offers no tax relief on contributions but allows tax-free access at any time. Many savers use both, treating the SIPP as a long-term retirement vehicle that benefits from tax relief, and the ISA as a more flexible pot accessible before retirement age.

SIPP versus a workplace pension

A workplace pension is arranged by an employer, and in most cases the employer is legally required to automatically enrol eligible staff and make a minimum employer contribution alongside the employee's own contribution, under UK auto-enrolment rules. This employer contribution is effectively free money that a standalone SIPP cannot replicate, since a SIPP has no employer attached unless set up specifically as an employer-sponsored arrangement. For this reason, most guidance suggests contributing enough to a workplace pension to receive the full employer match before directing additional retirement savings into a SIPP. A SIPP becomes more relevant for consolidating old workplace pensions after leaving an employer, for additional voluntary retirement saving beyond the workplace scheme, or for self-employed individuals who have no workplace pension at all.

Contribution allowances in more detail

The amount that can be paid into pensions each tax year while still attracting tax relief is governed by the annual allowance, which applies across all pensions an individual holds combined, not per scheme. There is also a separate rule limiting tax-relieved personal contributions to the higher of £3,600 gross or 100 percent of relevant UK earnings in the tax year, which matters particularly for those with low or no earned income who still want to contribute to a pension. Individuals who have already begun flexibly accessing their pension may trigger a reduced annual allowance on further contributions, known as the Money Purchase Annual Allowance, which is a lower limit than the standard annual allowance. All of these thresholds are reviewed at HM Revenue and Customs discretion and can change at any Budget, so current figures should always be checked directly rather than assumed.

Drawdown versus annuity at retirement

Once minimum pension age is reached, a SIPP holder choosing not to take the whole pot as cash generally has two broad options for the remainder after any tax-free lump sum. Flexible drawdown keeps the money invested and allows the holder to draw an income at a pace they choose, meaning the pot can continue growing but also carries ongoing investment risk and the possibility of running out of money if withdrawals are too high relative to growth. An annuity converts the pot into a guaranteed income for life, or for a fixed term, in exchange for giving up control of the capital, removing investment risk but also removing flexibility and the ability to leave unused funds to beneficiaries in the same way drawdown allows. Many retirees use a combination of both rather than choosing exclusively one or the other.

Frequently asked questions

What does SIPP stand for?

SIPP stands for Self-Invested Personal Pension, a type of defined contribution pension that lets the holder choose their own investments.

When can I access money in a SIPP?

Generally not before the normal minimum pension age set by HM Revenue and Customs, which is scheduled to rise to 57 from April 2028, subject to limited protections for some existing savers.

How much tax relief do I get on SIPP contributions?

Basic rate tax relief is added automatically by the provider. Higher and additional rate taxpayers can claim further relief through Self Assessment, up to their marginal rate, subject to the annual allowance.

Can I take money out of my SIPP as a lump sum?

Up to 25 percent of the pot can typically be taken tax-free, up to a monetary cap set by HM Revenue and Customs. Amounts beyond that are taxed as income.

Should I transfer a defined benefit pension into a SIPP?

This requires regulated financial advice, and for larger transfers that advice is a legal requirement. Defined benefit pensions often carry guarantees that are permanently lost on transfer.

Do SIPPs count toward Inheritance Tax?

Pension treatment for Inheritance Tax is changing, with pensions due to be brought within scope from April 2027. Current rules should be checked directly against HM Revenue and Customs guidance.